In his novel, 1984, George Orwell, an English author introduced a term “NEWSPEAK”, which consisted of synthetic words used to express a special meaning, often political.

In our time we are required to pay income taxes using rules that seem more complex than any literature, even the Bible. The tax reporting and payment rules are set forth in the Internal Revenue Code, and supporting regulations.

As of 2013, according to Commerce Clearing House, the number of pages exceeded 73,000. For purposes of this blog entry and future blogs, I use special words, definitions, and rules describing income and other federal taxes, and call them “TAXSPEAK TERMS”.

For example, let’s discuss the difference between a “tax deduction” and a “tax credit”. Let us assume that a taxpayer can use $1,000 as a tax deduction or a tax credit. Which is worth more? Here are the assumptions.

The taxpayer’s tax rate on “taxable income” is 28%. The tax that is owed before using either the deduction or the credit is $6,300. In this example the taxpayer does better by using the tax credit instead of the tax deduction.

The credit reduces the tax liability by $1,000, and the deduction lowers it by $280. The value of the credit is dollar for dollar, and the value of the tax deduction is $1,000 times the tax rate of 28%.